Follow on from the last blog; we continue to look at the relationship between base rate spreads and various interest rates. In this case it the spread between the rate on 2 year swap and Bank of England Base Rate. Chart 1 shows that the spread between 2 year interest swap and BOE base rate appears to have a coincident relationship with annual changes in house prices. The swap spread is more volatile than the 10Yr spread.

Chart 1 Swap Spread looks Coincident with Change in House Price

The relationship with annual change in house price is likely to be more coincident than leading. Except for the period from early 2002 to mid 2004- the peaks and troughs if the swap spread leads the highs and lows of house prices.